Wednesday, 19 December 2012

UK Green Investment Bank plc

UK Green Investment Bank plc is a funding institution created in 2012 by the UK government to attract private funds for the financing of the private sector's investments related to environmental preservation and improvement. It is structured as a public limited company and is owned by the Department for Business, Innovation and Skills (BIS).[1] Its headquarters are in Edinburgh, where it is also registered, and it has a secondary office in London.[2]



[edit] Origins

As a result of the Climate Change Act 2008, the United Kingdom is legally committed to significantly reducing its carbon emissions by 2050. More importantly, by 2020, a significantly higher percentage of energy generated in Britain must originate from renewable sources.[3]
A non-partisan, House of Commons committee on climate change was established to study and recommend ways of meeting the country's obligations. The committee reported that for a new, low-carbon business and government infrastructure to be established, the necessary investment would range between £200 billion and £1 trillion over the next two decades.[4]
The committee further stated that since traditional sources of capital for investment in green infrastructure could not provide even half that amount by 2025, there would be a funding gap that needed to be covered by the state budget.[4]
In 2009, two reports were published advocating the creation of a state-backed infrastructure bank to provide financing to green projects. The first, entitled "Accelerating Green Infrastructure Financing: Outline proposals for UK green bonds and infrastructure bank" was published in March 2009 by Climate Change Capital and E3G [5]. The second, entitled "Delivering a 21st Century Infrastructure for Britain" was published by Policy Exchange in September 2009 and was authored by Dieter Helm, James Wardlaw and Ben Caldecott [6]. These proposals were then contained in the manifestos of each of the main political parties for the 2010 UK General Election.
The Fiscal year 2010 British government budget contains the first mention of a "green investment bank" scheme, earmarked with £2 billion. Chancellor Alistair Darling stated that the Labour government was committed to "to support offshore wind energy" and other forms of alternative energy, which he also billed as "crucial to guiding the country out of recession".[7]
After the 2010 general election, the newly formed Conservative-Liberal Democrat coalition government defined its primary economic objective to be the drastical reduction of Britain's debt and yearly deficits.[8] Accordingly, the government sought to create a financing scheme for the environmental investment needs of the country that would be funded mainly by the private sector, including the banks.
In June 2010, the "Green Investment Bank" Commission, established by George Osborne in opposition, after holding hearings recommended that the government creates an eponymous banking entity within the year.[4] Chancellor George Osborne remained sceptical after objections to the creation of such a bank were raised by the Treasury, since a Green Investment Bank would "swell the state deficit" as it would appear as a liability on the government's balance sheet.[9]
The UK government's Spending Review of October 2010 that announced a raft of austerity measures to deal with the UK government deficit, also included an announcement about the creation of a Green Investment Bank. The government now expects to obtain by early 2013 the European Commission's approval for state aid to the Bank, with investment in green projects estimated to begin by April 2012[10].

[edit] Criticism

The plans for the environmental funding scheme have been endorsed by Greenpeace, whose executive director urged the prime minister to "get personally involved", as well as by a number of similar organisations,[11] such as Transform UK, whose director stated that "the only cost the Treasury should consider is the cost of failure to unleash this institution's massive potential to re-power our economy."[9] Environmentalists have engaged in public demonstrations demanding a quicker implementation of the plans.[12]
However, non-government organisations and environmentalists have criticised the scheme because it lacks ambition. The World Development Movement has disputed that such a small scheme would attract the kind of investment needed to "generate green jobs, green industry and a green economy in the UK".[13] An economic study commissioned by WDM and Platform recommended that, instead of creating a new "banking scheme", the government should "transform the [already] publicly-owned Royal Bank of Scotland into a powerful green investment bank", in the process also "creating 50,000 green jobs".[14]
In May 2011, a former adviser to the government, Jonathon Porritt, who had been head of the Sustainable Development Commission, publicly criticised the Coalition's scrapping of a planned rise in aviation tax, its watering down of schemes that promote small-scale renewable electricity and its failure to promote a "green investment bank" with immediate borrowing powers. Mr Porritt claimed he examined 75 policies on which the government had committed itself, finding little or no progress in 55. The government responded that it remains "committed to the environment", but claimed that the economic recession had affected environmental policies.[15].
The leader of the UK Green Party (and MP for Brighton Pavilion) Caroline Lucas, criticised the nomenclature of the GIB in January 2011, when she wrote that "It's a bit rich to call [the GIB] a green investment bank if it can neither borrow nor lend". Lucas argued that without these powers, "it would be a fund – that is, a pot of money that, once used up, is gone forever."[16].
Criticism has also centred on the location of the institution. Bloomberg claimed that "Most of the 50- 70 jobs will initially be in London..."[17] and some have questioned that the decision to locate many jobs in London, despite the announcement headline of Edinburgh being chosen as winner of the location contest, points to a "bid to defuse Scottish independence... a blatant move to unite the capitals over Alex Salmond's key policy."[18]

[edit] Commencement of activities

On 23 May 2011, Deputy Prime Minister Nick Clegg at a speech at Climate Change Capital stated that the Green Investment Bank "will begin operating in April 2012", adding that the bank's early targets would be "offshore wind, waste and non-domestic energy efficiency".[19] Clegg added that legislation would "ensure the independence of the institution."
On 24 May 2011, Business Secretary Vince Cable, in addressing the parliament, stated that the bank will become "a key component" of the transition to a "low-carbon economy", which will need "significant investment over the coming decades.” Cable also stated that the GIB will have an initial capitalisation of £3 billion, which "the Government believes will leverage a further £15 billion of private investment".[20]
The same day, the Department for Business, Innovation and Skills, in a press release[21] containing answers to "frequently asked questions" about the bank, outlined the planned finances of the GIB and its activation in "three phases":
  • Incubation (April 2012 until state aid approval): Government makes direct financial investments in the "green economy" (this entity was later named UK Green Investments)
  • Establishment (following state aid approval): UK Green Investment Bank is established as a "stand-alone institution". State aid approval was granted by the EU Commission on 17 October 2012.[22]
  • Full borrowing powers (ca. 2015-16): Bank is given powers to borrow, "subject to public sector's net-debt falling as a percentage of GDP".
Dr Cable unveiled on the same day his department's statement of vision for the bank[23]. The document was cautiously[24] positive about the prospects of private investment in the environment, in Britain.

[edit] UK Green Investments

The Department for Business appeared to indicate on 12 December 2011 that the 'Incubation' phase had progressed, with the announcement of a new team within the department: UK Green Investments (UKGI). The team is to "drive investment in the UK’s green infrastructure until the Green Investment Bank is formally established"[25]. As at 4 January 2012, the "Team" subpage of the UKGI homepage details six team members: five men and one woman.[26]

[edit] Management

On 25 May 2011, Vince Cable informed the House of Commons that BIS would appoint Sir Adrian Montague, CBE, chairman of private equity firm 3i, to lead a team of "independent financial experts" in setting up the UK Green Investment Bank before it starts work next year[27]. Secretary Cable said that the bank will be initially staffed by up to 100 people tasked with "financing the Coalition's plans for a low-carbon economy".
On 25 May 2012, Baron Smith of Kelvin was announced as the first Chair of the bank by Business Secretary Vince Cable.[28]

[edit] See also

[edit] References

  1. ^ "UK Green Investment Bank plc set up" Department for Business, Innovation and Skills
  2. ^ "UK to base Green Investment Bank in Edinburgh, London" Reuters, 8 March 2012
  3. ^ "Government figures show Britain will fail to meet its Kyoto obligations" The Independent, 18 February 2006
  4. ^ a b c Green Investment Bank, Environmental Audit Committee, House of Commons, UK, 2011
  5. ^ "Accelerating Green Infrastructure Financing: Outline proposals for UK green bonds and infrastructure bank", Climate Change Capital, UK, 2009
  6. ^ "Delivering a 21st Century Infrastructure for Britain", Policy Exchange, UK, 2009
  7. ^ "Budget 2010: Chancellor announces green investment bank" The Guardian, 24 March 2010
  8. ^ "British coalition stresses need for cuts" EuroNews, 13 May 2010
  9. ^ a b "Green investment bank 'must operate commercially'" The Guardian, 11 March 2011
  10. ^ "Resource security", Speech by Vince Cable, BIS Secretary, 12 December 2011
  11. ^ Letter to the editor of The Guardian, 1 March 2009
  12. ^ "Greenpeace activists scale Treasury building in green bank protest"The Guardian, 19 October 2010
  13. ^ Press release WDM, 20 October 2010
  14. ^ "Bank for the future" by James Leaton, with additional research by Howard Reed, 2010
  15. ^ "PM's pledge of greenest government 'vanishingly remote'" BBC News, 7 May 2011
  16. ^ "The green investment bank: neither particularly green, nor a bank" The Guardian, 27 January 2011
  17. ^ "Green Bank Will Have Base in Edinburgh, Jobs in London" Bloomberg, 8 March 2012
  18. ^ "Green Investment Bank bid to defuse Scottish independence" The Telegraph, 8 March 2012
  19. ^ "Clegg: UK green bank 'to begin investing in April 2012'" BBC News, 23 May, 2011
  20. ^ "UK Business Secretary sets out future of Green Investment Bank as ‘enduring institution’" Energy Efficiency News, 25 May 2011
  21. ^ Press release BIS, 25 May 2011
  22. ^ "UK Green Investment Bank gets green light from Europe" Department for Business, Innovation and Skills
  23. ^ "Update on the design of the Green Investment Bank" BIS, May 2011
  24. ^ "While different investor groups can be comfortable with different elements of risk profiles, the number of investors willing to take the set of required risks may be limited by lack of information and experience and the application of risk-averse rules of thumb." Update, p.14
  25. ^ GIB moves a step closer Department for Business, Innovation and Skills, December 2011
  26. ^ The UKGI Team Department for Business, Innovation and Skills, January 2012
  27. ^ "Nuclear boss Sir Adrian Montague to head Green bank", Telegraph, 25 May 2011
  28. ^ Lord Smith to chair Green Investment Bank - BBC News, 25 May 2012

[edit] External links

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